The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.

Obamacare and Extenders: Examining the Draft 1040 for 2014

August 4, 2014

Alan Cole

Alan Cole

The IRS last month posted drafts of its new forms for the 2014 tax year. These should by no means be considered complete – Congress can often keep meddling with the tax code deep into December – but looking at the draft 1040 can remind us of the changes ahead. Here are four lines from the 2014 1040 that reflect changes.

Expiring Provisions:

Line 23 – “Reserved:” This line reflects the potential expiration of the tax deduction for certain expenses of elementary and secondary school teachers. It is a modest little deduction for teacher out-of-pocket expenses spent on education supplies for work. Obviously, this problem would better be solved by schools simply providing the teachers with the necessary supplies, but the deduction has a decent chance of being extended again.

Line 34 – “Reserved:” This line reflects the tuition deduction, which is also slated to expire. It is perhaps more likely to leave the tax code, given its redundancy with the American Opportunity Credit. Awkwardly, you were only allowed to take one or the other of these, meaning that some people had to calculate their taxes twice, once with each option, in order to compare. Given that complexity, and given that the tax code isn’t a particularly good way of making college more affordable anyway, this is probably a welcome change.

Obamacare Additions:

Line 46 – “Excess advance premium tax credit repayment. Attach form 8962:” This line is for those taxpayers who received too large of a premium subsidy. The Obamacare premium subsidies have two characteristics that make them unique among refundable tax credits. The first is that they are paid to insurers on a taxpayer’s behalf, not paid to the taxpayer. The second is that they are paid during the year, not at the time taxes are filed. If the amount paid out turns out to be wrong (for example, if the taxpayer doesn’t correctly guess his income when applying for the subsidies) the taxpayer will be on the hook for returning the excess money to the IRS.

Line 61 – “Health care: individual responsibility (see instructions):” This is the much-talked-about individual mandate. The fee for not having health insurance in 2014 is 1% of your yearly income or $95, whichever is higher. The payment amount will rise in future years. While the IRS instructions are not yet available, the instructions will likely cover that calculation. The instructions will also cover the menagerie of exemptions that the Department of Health and Human Services have put forth.

While the lines of the 1040 pertaining to Obamacare are likely to be very small in absolute dollar terms for most taxpayers, they do show that the broad structure of the bill is finally coming online. Most of the real money involved, though – an amount eventually expected to reach $100 billion per year – will come through the subsidies paid to insurers, not the 1040.

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The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. For over 80 years, our goal has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.